A key part to preventing additional foreclosures from occurring throughout the state is for at-risk and distressed homeowners to reach out for assistance on their mortgages. To that end, I strongly encourage Minnesota homeowners who are at-risk of falling behind on their mortgages or are already in trouble to contact either the state or national foreclosure prevention hotlines provided below.
Minnesota Home Ownership Center Foreclosure Prevention Hotline:
651-659-9336 or 1-866-462-6466
www.hocmn.org
National Foreclosure Prevention Hotline
HOPE NOW
1-888-995- HOPE (4673)
http://www.hopenow.com
Importance of Homeownership
Across Minnesota, homeownership carries different meanings for different people. For some, it is where memories are made and their families grow. For others, it is about being a member of the ownership society and a source of wealth creation. And for many, it provides a sense of community. For these reasons, all of us should be deeply concerned that Minnesota currently ranks fourth in the nation in subprime mortgages in foreclosure and that the worst is yet to come, as a record number of adjustable rate mortgages are due to reset in the months ahead.
Listening to Minnesotans Affected by the Mortgage Crisis
As part of my on-going efforts to address the mortgage crisis affecting homeowners in the Twin Cities area and across the state, I held a Town Hall Forum in Minneapolis on November 19. Joining me at this event to hear first-hand from homeowners, community groups, housing experts, and key industry groups were Treasury Under Secretary for Domestic Finance Robert Steel and Richard Todd, Vice President of Supervision, Regulation and Credit at Federal Reserve Bank of Minneapolis. The Forum's discussion of the personal and economic effects of this crisis drives home the need for greater efforts to prevent the current crisis from getting worse. To that end, I will continue with my efforts in the Senate to address this crisis so that Minnesota's families, businesses and economy do not pay an ever higher price.
Addressing the Housing Crisis
HOME Act
While there is no single solution to this crisis, there are reasonable and measured steps that will help folks stay in their homes during these difficult times. One option, modeled after Hurricane Katrina emergency tax relief legislation, is the Home Ownership Mortgage Emergency Act (HOME Act -- S.2201), a bill I recently introduced in the Senate that would allow low-to-middle income homeowners penalty-free access to their retirement savings as well as tax-free savings so long as the withdrawals are paid back within three years. Specifically, the HOME Act would allow homeowners who are 60 days late in their mortgage payments to withdraw penalty-free up to $100,000 through 2009 to be used to refinance into an affordable mortgage or avoid foreclosure. Currently a 10 percent penalty is applied to non-qualified early retirement withdrawals as well as ordinary income taxes. Allowing for this relief is just one way to address the mortgage crisis. Other proposals which I support include FHA reform, tax-free mortgage debt forgiveness and targeted bankruptcy relief.
FHA Reform
Currently pending before the Senate is the Federal Housing Administration Modernization (FHA) Act of 2007, which would allow eligible homeowners to refinance with FHA backed loans and make mortgage debt forgiveness tax-free. It would also increase penalties for fraud and ensure pre-purchase counseling for first time home buyers. The Department of Housing and Urban Development estimates that through changes in the FHA program, they will be able to assist 240,000 borrowers who are facing resets but are still current on their mortgages. This legislation is not a bail-out. For people to refinance with an FHA insured mortgage at a prime rate, they have to show a good credit score, put down a 1.5 percent down payment and have been making regular payments on their mortgage before their rate dramatically increased. This is a good first step to help folks refinance into affordable mortgages so they can keep their homes.
Mortgage Debt Forgiveness
Another important proposal, of which I am a cosponsor is S. 1394, the Mortgage Cancellation Relief Act of 2007. This bill would make mortgage debt forgiveness tax free. This is a common-sense measure. Those who have had their homes foreclosed should not also be hit by a massive tax bill. Nor should those homeowners who have their mortgages worked out in order to keep their homes be hit with a tax bill on the forgiven mortgage debt.
Bankruptcy Relief
I am also a cosponsor of S. 2133 the Homeowners’ Mortgage and Equity Savings (HOMES) Act of 2007, which would provide for temporary, responsible, middle-class bankruptcy relief by allowing bankruptcy judges to modify adjustable rate mortgages. In addition to being income-limited, the bill’s relief would only be available to those who took out mortgages prior to September 26, 2007.
HOUSING-CDBG FLOOR SPEECH December 12, 2007
Mr. President,
I rise to add my voice to the important floor debate that has just occurred with respect to FHA reform and the subprime crisis.
Mr. President, this subprime crisis is one that is affecting folks all across the country, including my state of Minnesota. This isn’t just a one state issue or a regional issue, this is a national issue. This is a serious problem for states from Minnesota to Ohio to Florida to Nevada.
And when you look at the current foreclosure numbers and the mortgage reset projections for the next two years, it is clear that the problem is not just-short term but also one that will become worse in terms of the additional number of homeowners who will be affected.
Mr. President, when you consider my state of Minnesota, it may come as a surprise to some to learn that while Minnesota has consistently ranked as a leader in homeownership, Minnesota also unfortunately ranks up there in terms of the subprime crisis. For the third quarter, Minnesota ranks third in the nation in terms of subprime mortgages in foreclosure. In this year alone, foreclosures are expected to increase by 84 percent to 20,573.
Mr. President, in the state, the subprime crisis isn’t just affecting folks in the Twin Cities. This is affecting people in the suburbs and in greater Minnesota. Just the other day, the Star Tribune ran a story, “Mortgage Foreclosures Ripple into Rural Minnesota” about how rural Minnesotans are being hit by the subprime crisis. Mr. President, I ask unanimous consent to submit this article for the record.
Behind all the terrible numbers are people like Ms. Shoua Yang, who spoke at last month’s Housing Town Hall Forum I hosted in Minneapolis. Ms Yang spoke about how her mortgage payment has gone through the roof, from $800 to $1,300 per month because her adjustable rate mortgage has reset. Now she and her three children are close to losing the roof over their heads.
But it isn’t just homeowners with adjustable rate mortgages who are suffering.
It is renters, whose homes have been foreclosed through not fault of their own. It is construction workers -- Minnesota has now lost nearly 7,000 construction jobs over the year.
One of those families who has been directly impacted by the housing downturn is the Buchite family of Zimmerman, Minnesota. At last month’s Town Hall Forum, Audrey Buchite heartbreakingly spoke of how the loss of her husband’s job as a house framer has left the family in dire financial straits, even though they have a fixed, 30-year mortgage. In order to make ends meet, they have dropped their health insurance and their college-bound daughter has decided to help with the family finances instead of going to college.
And it is also folks in the timber industry. I was recently up in Aitkin in northern Minnesota, timber country, as part of my tour of all 87 Minnesota counties this year.
While I was up there, loggers were telling me how the housing downturn is hurting their business by depressing softwood lumber prices.
Mr. President, as a former Mayor, I strongly believe that home ownership brings about almost every social good we can think of. So it goes without saying that if home ownership does so much good, anything that threatens this social good threatens the whole community, not to mention the economy at large.
And so Mr. President, with the worst still ahead of us, I approach this crisis with a sense of urgency and commitment to helping at-risk and distressed homeowners in a fair and responsible way.
To that end, I am pleased that we passed FHA reform legislation earlier today to enlist the Federal Housing Administration in efforts to stem the surge in housing foreclosures and also prevent buyers from resorting to risky mortgages they may not be able to afford. This is an important step in addressing the subprime crisis – the legislation will increase FHA single-family loan limits across the board, at both the high and low ends and will help people refinance into safer mortgages.
I am also pleased that the Administration has rightly helped to bring industry together to come to terms on a voluntary, market-driven mortgage relief plan.
Some would argue that the relief plan amounts to a bailout. That it violates free-market principles. That it merely kicks the can down the road. And others claim that it doesn’t go far enough.
Well, Mr. President, the way I see it, mortgage servicers and investors have a collective self-interest in preventing mass foreclosures from happening – no one wins in a foreclosure.
Under the plan, as many as 1.2 million folks can be helped either by refinancing their mortgage or having their interest rates frozen for five years, which for many should give them the time needed to keep their homes. To put this in context, 1.8 million subprime mortgages will reset in 2008 and 2009.
It is important to also have the big picture in mind. If mass foreclosures happen, it isn’t just the homeowner who has lost his or her house who is affected, but also the surrounding homeowners whose property values may decline. Not to mention the impact on our communities. The key is to help folks who can be responsibly helped, to keep their homes.
So the way I see it, the Administration’s mortgage relief plan is an important, responsible step towards preventing what could be a foreclosure catastrophe.
In no way however, is the Administration’s plan the entire solution. There is no one single solution. Rather it will require a comprehensive set of solutions including:
• the just passed FHA reform bill,
• making mortgage debt forgiveness tax free,
• allowing middle-income homeowners penalty-free access to their retirement savings in order to save their homes from foreclosure as I propose through the HOME Act (the Home Ownership Mortgage Emergency Act S. 2201). This legislation is modeled after the Katrina Emergency Tax Relief Act of 2005; and
• providing temporary, middle-class mortgage bankruptcy relief as proposed by Senator Specter’s “Home Owners Mortgage and Equity Savings Act" (HOMES Act) of which I am a cosponsor.
We also clearly need better consumer safeguards and to that end I am encouraged the Federal Reserve is planning to issue new rules relating to unfair or deceptive mortgage lending practices and mortgage disclosures.
But as we work to address the subprime crisis, we need to be careful that we do not unintentionally do harm with policies that could restrict mortgage credit to future homebuyers. We have to be mindful of the unintended consequences of the policies we pursue.
I am just concerned that we could very well end up five years from now wondering why mortgage credit is not readily available to first-time homebuyers.
Mr. President, I want to take some time now to speak to one aspect of the fallout from the subprime crisis which is near and dear to my heart as a former Mayor. And that is the collateral damage that is being inflicted upon communities by the subprime crisis.
The on-the-ground reality is that the subprime crisis is setting off a terrible chain reaction in our communities that, if not mitigated, has the potential to affect communities’ standard of living for years to come.
According to Mayor Tim Howe of Coon Rapids, a suburban community just north of Minneapolis, one of the greatest effects of the subprime crisis has been the vandalism of foreclosed homes and associated petty crime in the hard-hit neighborhoods. To give you a sense of how quickly a foreclosed home can become the target of crime and a problem for a communities consider that in Cleveland, a home is looted and vandalized in just three days. I am sure that this is a similar story for communities all across the country.
Mr. President, I believe in the broken windows theory that it takes just one small act of crime to set in motion bigger troubles down the road. So the sooner we address the small problems the better off we are.
For some communities in particular, the subprime crisis also has the potential to reverse years’ of hard-won economic and community revitalization progress and in no time at all. As mayor, CDBG grants helped fund the Main Street Program helped to revitalize St. Paul, creating thousands of jobs and bringing people back to the city. However the current mortgage crisis threatens to undo this very progress.
Another aspect of the subprime crisis is how renters, usually of modest means, are finding themselves without a home due to foreclosure. These are just one of the unintended victims of the subprime crisis.
So in an effort to enable communities to better deal with the impact of the subprime crisis, I introduced this week with Senator Leahy, the Community Foreclosure Assistance Act (S. 2455), which would provide emergency Community Development Block Grant funding.
From the Housing Town Hall Forum to my conversations with community leaders, I have been told that this funding will provide critical support to communities ranging from renter assistance to mortgage counseling to dealing with abandoned, boarded-up homes. Due to the unique flexibility of CDBG, communities will able to respond as they need do and quickly.
CDBG is a program that has served our communities well overall, and in particular, during extraordinary economic distress. We turned to CDBG to provide $16.7 billion in response to Hurricane Katrina, and $2.7 billion to New York following 9-11. Back home, Minnesota was helped by CDBG following the terrible 1997 Red River flood.
In a situation like this we cannot be penny wise and pound foolish. Bottom-line, this funding can help limit the terrible chain reaction that can be set off by a foreclosure.
For if we do not reach out and help communities in trouble today, the cost to communities will be far greater and far more expensive to deal with in the future.
And so Mr. President, as I have led the bipartisan fight against CDBG cuts in past years, I will fight to provide this emergency funding as a tool to help communities manage the mortgage crisis. Just because a foreclosure happens does not mean that the entire community needs to suffer. That is the intent of this proposal.
Mr. President I ask unanimous consent to submit for the record a letter of support from the:
U.S. Conference of Mayors
National Association of Counties
National Community Development Association
National Association for County Community and Economic Development
National Association of Local Housing Finance Agencies
And letters of support from the Minnesota Association of Counties, the League of Minnesota Cities and Mayor Mark Voxland of Moorhead.
Mr. President, I yield the floor.